China Boosts Liquidity with Reserve Ratio Cut to Stimulate Growth Amid Economic Challenges"

BEIJING, Sept 27 — In a bid to revive its economy, China has slashed the reserve requirement for banks, unlocking approximately US$142.6 billion (RM585 billion) in liquidity. This decision by the People’s Bank of China follows recent acknowledgments by President Xi Jinping and other officials of "new problems" facing the nation.

The reserve cut, coupled with a reduction in the seven-day reverse repo rate from 1.7% to 1.5%, is part of a broader strategy to achieve a targeted 5% growth this year, a figure analysts view as overly ambitious given current challenges.

China's growth has been hindered by a persistent debt crisis in the property sector, weak domestic consumption, and rising youth unemployment. In response, the ruling Communist Party recently held a Politburo meeting to assess the economic landscape, emphasizing the need to confront difficulties head-on.

Business owners, like Shanghai's Chang Guiyong, report that conditions have become increasingly difficult, noting a decline in consumer spending even among professionals. 

This week's stimulus measures, including interest rate cuts and incentives for home purchases, have positively impacted the stock market, with Shanghai and Hong Kong stocks rising nearly 10%. Additionally, there are discussions about injecting over US$140 billion into state-run banks to enhance lending capacity, the first major capital boost since the 2008 financial crisis.

While recent actions signal a shift towards more aggressive economic support, analysts caution that China may still fall short of its growth targets without further fiscal measures, with ongoing property issues posing significant risks.